California’s Department of Corporations and the investment banks Wachova Securities LLC and Citigroup Global Markets Inc. agreed that the banks will buy $4.7 billion in auction rate securities from customers that had been frozen in the credit market.

The settlement is perhaps a sign that the credit freeze is starting to thaw.

The two investment banks combined have agreed to return more than $4.7 billion that had been locked in the Auction Rate Securities market to California investors. These funds are California agreements and a settlement only for state residents and companies.

The investment banks had advertised auction rate securities as safe, cash-equivalent investments. And for many years the auction rate securities market operated so efficiently and quickly it was cash-like — but with interest. Then, when the secondary markets froze suddenly last summer, the commercial paper market essentially stopped and no investors were willing to buy out older paper. That freeze meant that people or companies or municipalities that invested in the securities — and then needed them — had no access to their money.

The money is now available from the two companies under the settlement. Citigroup has agreed to buy back $3.2 billion from eligible customers, while Wachovia will repurchase $1.5 billion.

These are the first two investment banks that have settled with the state, said Mark Leyes, director of communications with the Department of Corporations.

“California has been negotiating with many of the major investment banks that sold auction rate securities,” he said. “This is a significant settlement, and it won’t be the last.”